Is Australia’s economic regulatory framework for communications fit for purpose in the face of market transformation? Case study on the Australian Competition and Consumer Commission (ACCC)

Context

The overarching framework for the regulation of communications in Australia largely dates back to 1997, when a number of legislative changes took effect with the objective of opening telecommunications markets progressively to full competition and privatising Telstra (the then government-owned monopoly provider of fixed line and the largest mobile communications service provider). Most economic regulation of the sector became the responsibility of the Australian Competition and Consumer Commission (ACCC) at that time with technical regulation the responsibility of other agencies (not discussed further in this case study).1

The key features of the regulatory framework for communications administered by the ACCC are:

• A third-party telecommunications specific access regime under Part XIC of the Competition and Consumer Act 2010 (CCA) designed to ensure that service providers have access to monopoly and other bottleneck infrastructure to supply competitive communications services to customers, where there are limited incentives for, or significant barriers to the development of, infrastructure-based competition. Declaration of services under this instrument is subject to a “long term interests of end-users” test, which can be an outcome of an ACCC inquiry. Once a service is declared, the ACCC can determine regulated terms and conditions of upstream access in an access determination or binding rule of conduct that applies if parties are unable to agree commercially.

• A telecommunications specific anti-competitive conduct regime under Part XIB of the CCA. In addition to containing a prohibition on anti-competitive conduct, Part XIB provides the ACCC with record keeping, information disclosure and monitoring powers in relation to the telecommunications sector. The Part XIB provisions operate in addition to the general, economy-wide, anti-competitive conduct regime set out in Part IV of the CCA.

• Some other communications sector functions governed by the Telecommunications Act 1997, including provisions governing access to particular telecommunications facilities, number portability and designated interconnection services as well as provisions that safeguard competition as services transition from legacy access networks to the National Broadband Network (NBN).

Issues

In April 2018, the ACCC released its final report from a market study into the communications sector.2 The study recognised that the sector is going through a period of significant change driven by both local developments and global technological and business trends that are changing how communications networks are designed and used to supply services.

The study looked forward over a five-year period to both examine immediate issues of concern and to form a view about the directions that policy and regulation should take. The study noted that “[t]his is to reflect the impact that new and emerging technologies and product innovations (such as Internet of Things and 5G) will have on significant segments of the communications sector. Where there are emerging impediments to competition, there may be a need for a regulatory response. Conversely, where market developments are leading to greater competition there may be an opportunity to reduce or remove existing regulation.”3

Approach and intervention

The key finding relating to the regulatory framework from the ACCC’s market study was:

In short, the ACCC found that the regulatory regime for communications remains fit for purpose in the face of significant market transformation and disruptive technologies. The same observation can also be made about the legal framework underpinning the ACCC’s regulatory and competition roles in the sector. While there have been changes in the legal framework, most notably in 2010 to strengthen the ACCC’s powers in setting upfront terms of access,5 the broad legal framework has shown to be fit for purpose.

The ACCC noted that, to a large extent, the regulatory regime for communications has to date been one of up-front economic regulation. The ACCC has set up-front terms and conditions of access to monopoly services to promote competition in related markets, and to set a price for the monopoly service that encourages efficiency and investment. However, the ACCC did signal a change in approach to regulation as applied to newer communications services:

For example, the ACCC concluded that the relatively nascent Internet of Things (IoT) sector ought to be allowed to evolve without ex ante regulation.

While the ACCC identified a number of risks to the development of a competitive IoT sector it noted a range of government, industry and regulatory processes underway to address many of the risks.

In the context of a relative immature and fast growing sector, the ACCC considered that active involvement with relevant external processes and continued monitoring for conduct or developments of concern would be the appropriate approach to promoting investment and competition in these markets.

One issue the ACCC’s study considered was how a regulatory imbalance should be addressed. That is, where regulation applies to an existing service but not a new competing service, should that imbalance be addressed and, if so, should it be addressed by applying regulation to the new service or removing regulation from the legacy one? For example, in respect of fixed line and fixed wireless broadband the ACCC concluded:

Should fixed wireless become a recognised substitute for high-speed fixed line broadband services, the need to apply consistent vertical separation regulation is likely to depend on the relative market power of firms within the sector (possibly within particular geographic areas rather than nationally), in addition to the technological substitution possibilities. However, given that fixed wireless substitution would represent an increase in competition; this would more likely signal a need to remove separation requirements on fixed line services.7

The ACCC recognised the rapid pace of change and the need to stay informed of developments in the communications sector in order to be in a position to assess whether future changes would require adjustment to the regulatory approach. To that end, the ACCC indicated that it will monitor the development of new communications services and, should competition concerns arise in relation to the provision of these services, it would address these concerns in the first instance using specific communications and general competition law provisions in the CCA.8

Finally, the ACCC noted that enhanced consumer access to data presents an opportunity for enhanced consumer participation and will help unlock better consumer decision making in purchases. It should also enable service providers to tailor products to consumer needs and make switching between services easier for consumers. These changes are expected to drive greater competition between service providers. In May 2018 the Australian Government approved a new “consumer data right” (CDR) regime, to be overseen by the ACCC.9 The CDR Rules were introduced for the banking sector in February 2020. The Rules provide the foundational framework for how the CDR operates in the banking sector and the ACCC will make sector specific rules for each new sector that is covered by the CDR.10 It is currently consulting on a rules framework in the energy sector11 with further sectors to follow. The government is yet to announce which sector, including potentially telecommunications, will be next.

Results, impact and lessons learnt

The ACCC’s market study has not found a need to significantly alter the regulatory framework or approach to the communications sector, finding that it remains fit for purpose despite significant technological change and disruption. A key driver of this finding is that the ACCC has a comprehensive and flexible set of regulatory tools at its disposal.

However, the ACCC has made the following observations about regulation of the sector in the coming years:

• Newer communications services are likely to require less ex ante regulation than legacy ones as they are not characterised by the natural monopoly characteristics of traditional communications services/because of the dynamic and often more competitive conditions in which they are emerging. Where appropriate, sector-specific and general anti-competitive conduct provisions will be applied.

• Some newer services may emerge as recognised competitors to existing services (e.g. the emergence of fixed wireless as a competitor to fixed line broadband). Where this occurs the need for vertical separation regulation will be considered based on the relative market power of the firms within the sector. However, where the emerging service represents an increase to competition the appropriate change to regulation may be to remove some regulation on the incumbent provider.

• In this fast changing environment, there is a need to be vigilant and for regulators to remain informed of market developments, particularly as technological changes can occur very quickly meaning that problems can arise equally as quickly. To this end, the ACCC is focusing on some additional information gathering and monitoring efforts in the sector, particularly on emerging markets such as the IoT and discrete markets for NBN transmission services.

• Consumer access to data presents an opportunity for enhanced consumer participation and will help unlock better consumer decision making in purchases. It should also enable service providers to tailor products to consumer needs and make switching between services easier for consumers. These changes are expected to drive greater competition between service providers. In 2018 the Australian Government initiated this right by introducing the CDR in the banking sector.

Co-operation

The Australian Communications and Media Authority (ACMA) is the authority responsible for regulating broadcasting, radio communications, telecommunications and the internet. The ACMA and ACCC’s functions largely complement each other, with some overlap in relation to consumer safeguards. The ACCC provides advice to the ACMA on competition issues regarding spectrum allocation processes including recommendations on allocation limits on request. The ACCC also provides submissions to ACMA public consultation processes where relevant, and meets regularly with ACMA at a staff level on matters of mutual interest.

The ACCC and ACMA have established a Memorandum of Understanding to govern their relationship to provide for effective co-operation to contribute to both bodies effectively and efficiently discharging their functions. This includes the sharing of information and cross-appointment arrangements. These arrangements provide for both regulators to provide timely and expert input into each other’s decision-making processes. The close relationship between the two agencies has been particularly important in developing strategies to address consumer issues that have arisen during the migration of consumers from legacy networks to the NBN. Both agencies have put in place complementary regulations to address gaps and failures in the migration process.

The ACCC ensured that the ACMA was engaged and consulted during critical junctures of the market study, including through the sharing of draft reports and discussion papers and the industry forum held mid-way through the study.

In terms of international co-operation, the ACCC participates in a number of international forums and interacts with international counterparts through these fora. It also has a range of arrangements with specific international counterparts relating to a range of functions. The ACCC engages regularly on communications matters with its New Zealand counterpart, the New Zealand Commerce Commission. Meetings with the United Kingdom regulator, Ofcom and the United States’ Federal Communications Commission occur more sporadically on issues of mutual interest.